2015 (2) TMI 1073 - AT - Income Tax

Deduction on account of bad debts written off - Held that - It is pertinent to mention that the admissibility of deduction u/s 36(1)(vii) is coupled with the fulfillment of the condition as given in section 36(2). The later provision provides that no such deduction shall be allowed unless such debt or part thereof has been taken into account in computing the income of the assessee of the previous year in which the amount of such debt or part thereof is written off or of an earlier previous year, etc. A conjoint reading of section 36(1)(vii) and section 36(2) makes it abundantly clear that any amount of bad debt written off during the year can be allowed as deduction provided such debt or part thereof was taken into account in computing the income of the assessee for this year or an earlier year. Unless such debt is taken into consideration in the computation of total income, there can be no question of allowing deduction on its becoming irrecoverable or on a mere write off. As necessary facts of this issue are not available and the ld. CIT(A) has simply accepted the assessee s claim without going into the deductibility of this amount as per law in terms of above discussion, we set aside the impugned order and remit the matter to the file of AO for deciding this issue afresh in conformity with our above observations. Needless to say, the assessee will extend full co-operation to the AO by submitting the details called for and will be entitled to a reasonable opportunity of being heard in such fresh proceedings. - Decided in favour of revenue for statistical purposes. Addition on account of provision for contractor and provision for suppliers - CIT(A) deleted the addition - Held that - CIT(A) deleted the addition without going into the merits of its deductibility in the first instance. He simply mentioned in the impugned order that the assessee had shown that the provisional balances were specifically adjusted against the bills of sub-contractors. In contrast to that, we observe from the assessment order that the assessee did not furnish any details and anything about the otherwise deductibility of such provisions. Further, there is no elaborate discussion about these vital aspects in the impugned order. We, therefore, set aside the impugned order on this issue and remit the matter to the file of AO for a fresh determination of the same as per law, after allowing a reasonable opportunity of being heard to the assessee.- Decided in favour of revenue for statistical purposes.

Summary

Issues Involved:
1. Allowance of deduction for bad debts written off in assessment years 2006-07, 2007-08, and 2008-09.
2. Deletion of addition of provision for contractor and provision for suppliers.
3. Deletion of addition of bad debts written off in assessment year 2008-09.

Analysis:

Issue 1: Allowance of deduction for bad debts written off in assessment years 2006-07, 2007-08, and 2008-09:
The primary issue raised by the Revenue in the appeals pertained to the allowance of deduction amounting to &8377; 1,84,40,253/- for bad debts written off. The Assessing Officer (AO) rejected the claim citing that a new claim should have been made through a revised return within the prescribed time under section 139(5). However, the ld. CIT(A) accepted the claim and granted the deduction. The ITAT observed that the appellate authorities could consider such claims even if the AO could not. While the ITAT acknowledged the Supreme Court's decision that a simple write-off of a bad debt is sufficient for claiming a deduction, it emphasized the importance of fulfilling the conditions under section 36(2) for allowing such deductions. As the CIT(A) did not delve into the eligibility of the claim as per the law, the ITAT set aside the order and remitted the matter to the AO for fresh consideration in line with the observations made.

Issue 2: Deletion of addition of provision for contractor and provision for suppliers:
The appeal focused on the deletion of an addition of &8377; 4,31,72,978/- concerning provisions for contractors and suppliers. The assessee included these provisions in the list of sundry creditors but failed to provide an explanation when asked about the eligibility for deductions. The CIT(A) deleted the addition without a detailed discussion on the merits of deductibility. The ITAT noted the lack of information and discussion on the deductibility of these provisions in the impugned order. Consequently, the ITAT set aside the order and directed the AO to reevaluate the matter in accordance with the law, granting the assessee a fair opportunity to present its case.

Issue 3: Deletion of addition of bad debts written off in assessment year 2008-09:
In the appeal for assessment year 2008-09, the issue revolved around the deletion of an addition of &8377; 10,69,25,323/- for bad debts written off. The AO sought specific details regarding the bad debts, but the assessee failed to provide the necessary information. The CIT(A) allowed the deduction based on the write-off in the books of account. However, the ITAT found the lack of details provided to the AO and the absence of an investigation into the fulfillment of conditions under section 36(2) concerning the deductibility of the amount. Therefore, the ITAT overturned the CIT(A)'s decision and remitted the matter to the AO for a fresh determination, emphasizing the need to verify the deductibility of the amount as per the relevant sections.

In conclusion, the ITAT allowed the appeals for statistical purposes in all three issues, highlighting the importance of complying with legal provisions and ensuring a thorough examination of the eligibility for deductions in such cases.